European stock futures rose modestly while Japanese equities declined, as global investors turned their focus to key central bank decisions this week. European futures advanced 0.4%, following similar movements in Australia and Hong Kong. However, Japan’s Nikkei 225 slipped, weighing on the broader regional index.
U.S. stock futures remained steady after the S&P 500 posted a 0.1% gain and the Nasdaq 100 fell by 0.5%. Investors have been rotating out of large technology stocks, which have been the driving force behind the bull market. Meanwhile, the U.S. dollar stabilized after four days of declines, as traders positioned themselves for a potential half-point rate cut from the Federal Reserve. The debate continues on the size of the rate cut, particularly given mixed economic data, with persistent inflation being a concern. Tuesday’s U.S. retail sales figures may offer more clues ahead of the Fed’s decision.
“August’s U.S. retail sales report is arguably the most significant data release of the day,” noted Michael Brown, a strategist at Pepperstone Group Ltd. “A softer reading could prompt investors to fully commit to the idea of a 50 basis point Fed cut tomorrow. Conversely, if the data beats expectations, it could temper the aggressive bets for dovish policy.”
In Hong Kong, shares of Midea Group Co. surged as much as 9.5% in their debut, following strong demand for the largest public offering in the city in three years. This listing has revived hopes in Hong Kong’s market, which has seen a decline in initial public offerings (IPOs). Future listings in the region, including ride-hailing giant Didi Global Inc., could benefit if the positive momentum continues.
However, concerns linger regarding China’s economic health. Weak economic data over the weekend has intensified pressure on Chinese authorities to implement fiscal and monetary stimulus to achieve the country’s growth targets. Additionally, the prospect of U.S. tariffs on Chinese goods, particularly in the medical products sector, poses another headwind. Shares of Malaysian glove manufacturers, including Top Glove Corp, surged in response to expectations that the U.S. would finalize these tariffs this month.
Asian markets experienced a mixed day of trading. Markets in China, Taiwan, and South Korea were closed for public holidays. In contrast, the Japanese yen maintained its strength, crossing the 140 per dollar mark for the first time since July 2023, as it continued to recover from its weakest point in nearly four decades.
The yen’s appreciation has been fueled by market expectations of a narrowing interest rate differential between the U.S. and Japan, which has pressured Japan’s export-heavy stock market. The upcoming Bank of Japan (BOJ) meeting could further influence market sentiment. “Should Governor Ueda hint at a possible rate hike in October, USD/JPY and the Nikkei will likely face renewed selling pressure,” said Tony Sycamore, an analyst at IG Australia Pty Ltd.
All 53 economists surveyed by Bloomberg expect the BOJ to maintain its benchmark rate at 0.25% following its two-day meeting, despite two rate hikes already this year. This meeting coincides with divergent views among leveraged funds on the yen. While some are securing profits ahead of the policy decisions, others are increasing their long-yen positions in anticipation of a significant rate cut by the Federal Reserve. Firms like JPMorgan Chase & Co. are also adjusting their yen forecasts, reflecting expectations for normalized interest rates in both the U.S. and Japan.
In the commodities market, gold continues to hover near record levels, with traders betting on the potential benefits of a weaker U.S. dollar and declining Treasury yields post-Fed decision. Silver followed suit, climbing toward $31 an ounce and extending its rally to a seven-day winning streak, the longest since 2019. Oil prices also edged higher, indicating a cautiously optimistic market outlook.
Analysis: Investors should closely monitor central bank decisions this week as they will set the tone for global markets in the coming months. The Fed’s move on interest rates could significantly affect currency markets, particularly the dollar and yen, which in turn may influence the equities and commodities landscape. Midea’s strong debut in Hong Kong signals potential opportunities in the IPO market, while China’s economic challenges could affect sectors sensitive to trade policies, such as technology and healthcare.
